In the matter of Malvern Developments (Vic) Pty Ltd

1. [1]

   By my judgment delivered on 14 July 2021 ([2021] NSWSC 888) I ordered that a creditor’s statutory demand (“Demand”) issued by the Defendant, Devakon Pty Ltd (“Devakon”) be set aside and that Devakon pay the costs of the Plaintiff, Malvern Developments (Vic) Pty Ltd (“Malvern”) of that application, as agreed or as assessed. At Malvern’s request, I reserved the opportunity for it to bring an application for indemnity costs if so advised.

The applicable legal principles

1. [2]

   By submissions made on 21 July 2021, Malvern pursued the application for indemnity costs. Mr Li, who appears for Malvern, referred to cases which have recognised that a creditor who uses the procedure for service of a creditor’s statutory demand to seek to require payment of a genuinely disputed debt risks an order for indemnity costs, including Barrett J’s decision in CGI Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd [2003] NSWSC 728 at [18]-[22], White J’s decision in Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital [2007] NSWSC 772 and my decision in Re Ming Tian Real Property Pty Ltd [2021] NSWSC 386.

2. [3]

   In CGI Systems and Management Consultants Pty Ltd v APRA Consulting Pty Ltd above at [18]-[22], Barrett J observed that:

3. [4]

   In Soudan Lane Pty Ltd v Glen Bradshaw t/as Pacific Coast Digital above at [5]ff, White J observed that:

4. [5]

   In Specialty Fashion Group Ltd v Global Red Australia Pty Ltd [2012] NSWSC 256 at [14], I observed that the focus is on whether on the objective material known to the creditor, prior to the demand being issued, it was reasonable for the creditor to issue that demand. I adopted the same approach in Re Pierotti & Fanani Pty Ltd as trustee for the Caesars Properties Unit Trust [2018] NSWSC 457.

The parties’ submissions and determination

1. [6]

   Mr Li, in submissions for Malvern, referred to Devakon’s service of the Demand on 11 March 2021; to a letter dated 1 April 2021 sent by Malvern’s solicitor which gave notice of an offsetting claim for liquidated damages on which Malvern would rely in an application to set aside the Demand; and to Malvern’s application to set aside the Demand filed on 6 April 2021. Mr Li also referred to Devakon’s submissions prior to the hearing before me on 14 July 2021 and noted that, at the hearing on 14 July 2021, Counsel for Devakon accepted that the Demand should be set aside, where Malvern had recently commenced proceedings in the Commercial List pursuing a claim for liquidated damages, but unsuccessfully contended that a condition should be imposed on an order setting aside the Demand, under s 459M of the Corporations Act 2001 (Cth), that required Malvern to pay the amount claimed into Court.

2. [7]

   Mr Li submits that Devakon knew of the factual basis giving rise to the offsetting claim on which Malvern relied at the hearing, as set out in the letter dated 1 April 2021 from Malvern’s solicitors. He submits that it was unreasonable for Devakon to have proceeded to defend the application to set aside the Demand and that Devakon’s “true purpose” for pressing the Demand was to obtain orders requiring Malvern to proffer security for the amount claimed under s 459M of the Corporations Act. He submits that, if that was Devakon’s sole purpose in serving and pressing the Demand, then that conduct should not be encouraged and was unreasonable. That proposition turns, of course, upon its premise.

3. [8]

   Mr Reynolds, who appears for Devakon, responds, with some force, that Malvern’s application for indemnity costs was another example of a “very unfortunate trend of parties seeking indemnity costs based on little more than the fact of their success in litigation” and that:

4. [9]

   Mr Reynolds submits that the letter dated 1 April 2021 from Malvern’s solicitors did not amount to a letter falling within the scope of the principle in Calderbank v Calderbank [1975] 3 All ER 333. I do not understand Mr Li to contend that that letter had that character, as distinct from having significance in drawing Devakon’s attention to the basis on which Malvern sought to set aside the Demand. If Malvern relied on that principle, I would accept Mr Reynold’s submission that it was not unreasonable for Devakon not to accept an invitation to capitulate before the hearing, not least because it was fairly arguable that the Court should impose a condition under s 459M of the Act on setting aside the Demand. There are cases in which Courts have done so, including Grandview Ausbuilder Pty Ltd v Budget Demolitions Pty Ltd [2018] NSWSC 1647, as well as other cases in which Courts have not done so, and the outcome of Devakon’s application for such a condition turned on the particular facts.

5. [10]

   Mr Reynolds also submits that it was not unreasonable for Devakon to have resisted the application to set aside the Demand or, as events developed, it was not unreasonable for it to seek the imposition of the condition under s 459M of the Act. It also seems to me that, as Mr Reynolds submits, I should not draw any inference that Devakon’s purpose in serving the Demand was to extract that condition, or that that purpose was foreign to the purpose of the Demand, not least because the Act authorises the imposition of such a condition on setting aside a creditor’s statutory demand and there are cases in which the Courts have imposed such conditions. Mr Reynolds submits that the application to vary the costs order made on 21 July 2021 should be dismissed, with Malvern to pay Devakon’s costs of that application on an indemnity basis. I had drawn the possibility that such an order may be made, if an application for indemnity costs was unsuccessful, to Mr Li’s attention at the conclusion of the hearing, when reserving the liberty to his client to press such an application if so advised.

6. [11]

   For the reasons I have set out above in dealing with the parties’ submissions, I am not persuaded that Devakon acted unreasonably in seeking the condition that funds be paid into Court, at the hearing before me, although it was unsuccessful in obtaining the order that it sought. As I noted above, there are several cases in which such a condition has been imposed and it might have been imposed here, although it was not.

7. [12]

   For these reasons, the application brought by Malvern to vary the costs order that I had previously made for costs in its favour on the ordinary basis is dismissed, and Malvern Developments (Vic) Pty Ltd must pay the costs of and incidental to that application on an ordinary basis. I am not persuaded that the application to vary the costs order is sufficiently unreasonable to order that it pay the costs of the application on an indemnity basis.